Agriculture Lobby Wins Big in New Farm Bill

Agriculture Lobby Wins Big in New Farm Bill

The
House and Senate are close to agreeing on legislation reauthorizing
most farm programs for the next 10 years. Although both the Farm
Security Act (H.R. 2646) and the Agriculture Conservation and Rural
Enhancement Act (S. 1731) would take a toll on the finances of most
American families for years to come, the most active citizen
participants in the development of the farm bill have not been
representatives of taxpayers and consumers, but the leaders of
several large farm organizations.

Not
coincidentally, most analysts agree that the farm lobby will be the
largest beneficiary of legislation that will increase farm
subsidies to $191 billion over the next 10 years.1 These subsidies,
combined with an additional estimated $271 billion in
government-inflated food prices, will cost the average American
household nearly $4,400 over the next decade.2 Given that the nation's farm
legislation will have such a large impact on all Americans, it is
important to identify the farm policy's winners and losers, and to
examine the role agricultural interests have played in crafting
it.

Who Really Will Benefit?

Current agriculture policies are designed
to concentrate farm subsidies among large farms and agribusinesses.
Rather than being awarded with regard to need, subsidy payments are
based on the types of crops that are grown. More than 90 percent of
all farm subsidies are allocated to farms that produce just five of
the United States' 400 domestic agricultural products. In addition,
subsidies to farmers increase with crop production, guaranteeing
that the largest and most profitable farms receive the largest
federal subsidies.

In
addition to subsidies, assistance is given to farmers in the form
of price supports, through which crop prices are artificially
increased. The lion's share of this assistance, likewise, goes not
to farmers who are most in need, but to large farms that grow the
most crops.

In a
system that is more accurately classified as corporate welfare than
as income-support for struggling farmers, two-thirds of all farm
subsidies go to just 10 percent of farms, most of which earn over
$250,000 annually. At the same time, 60 percent of the nation's
farmers, regardless of need, are left out of the farm subsidy
system altogether.3

Because the largest agribusinesses are the
chief beneficiaries of agriculture policy, they have both the
incentives and resources necessary to invest heavily in maintaining
the current flow of subsidy dollars. Through representative
organizations, they have served on federal commissions, testified
before Congress, and donated millions of dollars to federal
political candidates. Not surprisingly, the House and Senate farm
bills include many of the provisions that these groups support,
including massive farm subsidies and price supports.

The Winners

Producers of
Subsidized Commodities. Producers of subsidized commodities have been the chief
beneficiaries of farm policy. The 1996 Freedom to Farm Act4 was an important
attempt to reform farm policy and would have initiated a gradual
phaseout of nearly all farm subsidies. However, this impetus toward
reform was countered by emergency agriculture spending bills that
were passed by Congress every year between 1998 and 2001, resulting
in a record high of $29.8 billion in farm subsidies in 2000.5

The
farm bill that is developed this year will be critical in setting
the direction of farm policy for the next decade. Congress will
decide whether to recommit to the Freedom to Farm goal of phasing
out crop subsidies or to abandon Freedom to Farm altogether and
return to an era of massive government subsidies to farmers.

Of
the $64.2 billion in direct subsidies paid to farmers between 1999
and 2001, over 90 percent went to producers of just five
crops--wheat, corn, cotton, soybeans, and rice.6 With millions of dollars at stake, the
farm lobby has been actively involved in the current farm bill
debate through both policy advice and generous donations to
political candidates.

Organizations representing the farmers of
the subsidized crops are responsible for much of the $69.6 million
that agribusinesses have donated to congressional and presidential
candidates since 1999.7 Several of these organizations were
also represented on the 11-member Commission on 21st Century
Production Agriculture, which was established under the Freedom to
Farm Act to review its performance and recommend changes. In
January 2001, the commission released a report calling for the
complete abandonment of Freedom to Farm through (1) the extension
and expansion of Production Flexibility Contract (PFC) subsidies
that were supposed to be phased out, (2) the creation of a new
"counter-cyclical" farm subsidy program, and (3) the continuation
of policies targeting subsidies to the largest farms and
agribusinesses.8

American Farm Bureau Federation President
Bob Stallman, a commission member, reiterated these policy
prescriptions before the House Agriculture Committee on February
28, 20019 and later
called any vote against them a "slap in the face."10 The Washington, D.C.,
office of the American Farm Bureau Federation backed up these calls
for increased farm subsidies with political donations of a steady
$4.5 million per year.

Similarly, a member of the National Cotton
Council's board of directors, claiming to represent the entire
cotton industry, testified in favor of subsidy increases before the
House Agriculture Committee on July 18, 2001. His suggestion was
given added weight by $304,422 in political donations that the
council contributed to federal political candidates since 1999.11

The
unprecedented farm subsidy increases proposed by these agriculture
industry representatives were quickly written into farm
legislation, and on October 5, 2001, the House of Representatives
voted overwhelming to pass the most expensive farm bill in history.
The 10-year, $171 billion bill contains virtually the same PFC
expansions, new counter-cyclical farm subsidies, and further
tilting of farm subsidies toward the largest farms that were
proposed by the farm lobby. The Senate followed suit by passing an
equally expensive bill with most of the same policy
prescriptions.12

If
these bills become law, the biggest winners will be pro-farm
subsidy organizations such as the Washington office of the American
Farm Bureau Federation, which made large investments to promote
expanded farm subsidies and will be able to claim credit for
increased government payments to their membership. Winners will
also include numerous Members of Congress, Fortune 500 companies,
and other notables listed in Table 1 as well as large farms and
agribusinesses listed in the Appendix.13

Sugar
Growers.
Currently, the federal government provides benefits to sugar
growers through price-setting policies that artificially raise the
prices that consumers pay for sugar, rather than through direct
subsidies. These price-setting policies contain the following
elements: (1) strict tariffs (import taxes) and import limits to
prevent competition from cheaper foreign sugar; (2) non-recourse
loans to sugar processors, which revert to the status of grants if
the price of sugar drops below a certain level; and (3) domestic
limits on how much sugar can be processed.

All
told, the sugar program artificially increases the price of sugar
to three times the world market price and costs American consumers
$1.9 billion per year in higher food prices.14 Despite its harm to consumers,
however, the federal sugar program was left untouched by the 1996
Freedom to Farm Act.

Since 1999, $4.3 million has been donated
to federal politicians by the sugar industry, nearly all of which
has come from organizations representing farmers who benefit from
these price supports and want to continue them. Among such
pro-price support organizations are the American Sugar Cane League,
which has donated $414,898 to federal candidates since 1999, and
American Crystal Sugar, which has donated $795,235. In December
2001, an amendment offered by Senator Judd Gregg (R-NH) to
eliminate the federal sugar program and shift the savings to the
food stamp program was defeated by a vote of 71-25.15

The
largest beneficiary of continued government price-fixing in the
sugar industry, however, will be Florida's Flo-Sun, Inc. Owned by
brothers Alfonso (Alfie) and Jose (Pepe) Fanjul, the Flo-Sun sugar
empire includes several sugar mills and 410,000 acres of land in
Florida and the Dominican Republic. Despite a fortune
conservatively estimated at $500 million, the Fanjuls receive a
huge annual sugar benefit from the federal government: roughly $65
million for their Florida-grown sugar and an additional $60 million
for the Dominican sugar they sell in the United States.16 Profiting from
Congress's misguided policies, the Fanjuls have purchased a
7,000-acre luxury resort with 14 swimming pools, several mansions,
and world-class golf courses.17

It
is not unreasonable to assume that Flo-Sun may well have had
substantial influence on the current farm policy debate on Capitol
Hill, given that it has donated $1,136,900 to federal politicians
since 1999. Overall, the sugar industry continues to be a major
beneficiary of price-support policies that have cost American
consumers billions of dollars.

Peanut
Producers. While the sugar industry has been actively lobbying to
maintain its price supports, the peanut industry has dedicated its
resources to promoting a shift from price supports to taxpayer
subsidies for peanut production. Currently, peanut prices are
increased to artificially high levels through import restrictions
and non-recourse loans.

Prices are also kept high through domestic
shortages that have been created by limiting permission to grow
peanuts for domestic sale to those who possess marketing
quotas--licenses to grow a specific amount of peanuts. These
government-created shortages raise the price of peanuts sold in the
United States to double the world price and cost American consumers
over $400 million annually.18

For
years, Congress has talked about eliminating peanut price supports,
and the peanut industry has worked actively to ensure that any such
change will preserve government benefits to the peanut industry. In
testimony before the House Agriculture Committee on June 18, 2001,
Western Peanut Growers Association (WPGA) President Doyle D.
Fincher proposed replacing the current peanut price support system
with direct government subsidies to peanut growers and called for
massive government payments to compensate holders of peanut quotas
for the loss of the value of their quotas.19 The National Peanut Growers Group
(NPG), a coalition of state and local peanut organizations, also
provided congressional testimony in favor of moving away from price
supports and toward government subsidies.20

Adding weight to these proposals are hefty
political donations made by these organizations. Since 1999, the
Western Peanut Growers Association has donated $107,000 to federal
candidates, and the National Peanut Growers Group has donated
$138,000.

The
wishes of the WPGA and NPG were granted when the House's Farm
Security Act included a provision to replace peanut price supports
with a new a 10-year, $3.5 billion peanut subsidy program. The
Senate bill contains similar provisions. In effect, the new program
shifts the cost of peanut subsidies from consumers to
taxpayers.

According to the U.S. General Accounting
Office, the biggest winners will be the peanut growers who had not
previously owned a peanut quota but would now be granted permission
to grow peanuts for domestic sale. Not only will they now be able
to grow peanuts without restrictions, but they will also be
eligible for federal subsidies. Not to be denied, quota holders
will also benefit, since both the House and Senate bills award
grants averaging $125,000 to each quota holder as compensation for
losing the value of the quota.21

Dairy
Farmers. The House and Senate farm bills also benefit the dairy
industry. Current law is based on the perception that Midwest dairy
farmers produce milk too efficiently, resulting in milk prices that
are considered to be too low.

In
response to this situation, the federal government allows states
with less efficient dairy farmers to establish local milk cartels
to keep less expensive Midwest milk off the market and sustain
artificially high prices for milk produced in those states. Under
this Depression-era program, the further a participating state is
away from Eau Claire, Wisconsin, the higher its milk prices are
increased. Each year, this "milk tax" costs supermarket customers
approximately $2.7 million.22

Much
of the $3.3 million donated to federal candidates by the dairy
industry since 1999 has been from dairy farmers who support
continuing the current price-fixing scheme. In testimony before the
House Agriculture Committee on April 5, 2001, Jerry Kozak--CEO of
the National Milk Producers Federation (NMPF), which represents a
majority of the nation's 83,000 dairy farmers--declared that the
current milk policy, which raises the price of milk as much as 20
cents per gallon, benefits consumers and should be continued.23 The policy
prescriptions of the NMPF were buttressed by the $120,500 in
donations it has made to federal candidates since 1999.

In a
step toward reform, the Northeast Interstate Dairy Compact, which
had allowed New England states to set milk prices even higher than
federal regulations permitted, was allowed to sunset in October
2001. However, this move was countered by a stipulation in the
Senate bill, which awards $2 billion in golden parachute payments
to assist dairy farmers who will lose the benefits of this second
tier of price inflation and provides additional aid to other dairy
farmers nationwide. An amendment by Senator Michael Crapo (R-ID) to
delete this funding was strongly opposed by the farm lobby and
failed by a vote of 51 to 47.24

As
written, both the House and Senate bills will continue current
price-altering milk policies. Federal policies that increase milk
prices appear to be here to stay, and dairy farmers--especially
those far away from Eau Claire, Wisconsin--will continue to be the
beneficiaries.

The Losers

Consumers and
Taxpayers. The House and Senate farm bills create many
winners--first and foremost the producers of corn, wheat, cotton,
rice, soybeans, sugar, peanuts, and milk. Specifically, the 241,000
farms that are awarded two-thirds of all farm subsidies, the 57,500
farms that each receive more than $100,000 annually, and those that
benefit from government-inflated food prices will benefit greatly
under the record-high subsidies and price supports included in H.R.
2646 and S. 1731.25

The
bills' losers include the 270 million Americans who will be forced
to pay high taxes and inflated food prices to subsidize this
special interest. While the final bill has yet to be written, it is
currently estimated that the House and Senate bills will increase
total agriculture subsidies to $191 billion and that inflated
prices will cost consumers another $271 billion over the next 10
years.

Within the next decade, these
special-interest programs will cost the average American household
$1,805 in taxes and $2,572 in inflated food prices, for a total of
$4,377.26
Furthermore, these inflated prices will disproportionately hurt
low-income families, who spend a higher percentage of their income
on food.

If
the $462 billion in benefits over the next decade were to be
divided among the nation's 456,000 full-time farms, each would
receive an average benefit of more than $1 million in direct
subsidies and inflated prices. In light of the fact that
approximately two-thirds of the $69.6 million in political
donations given by agribusinesses was given by entities that
favored increased subsidies and price supports, this indicates
quite a good return on the dollar. Their $46.4 million investment
brought home a $462 billion bounty.

Conclusion

Many
political scientists no doubt would consider agriculture policy a
classic case of special-interest politics. Agricultural policy has
very few beneficiaries, but the stakes are high and the benefits
are great for those who could be among the winners. These
beneficiaries therefore have great incentive to invest their time,
expertise, and money to ensure that the current system is
perpetuated and expanded.

On
the other hand, though the cost of these special-interest policies
is in the billions, it is diffused over 270 million Americans, most
of whom do not notice the slow trickle of dollars being transferred
from their pockets to agribusinesses and farms with incomes that
dwarf their own. They therefore feel little incentive to counter
the farm lobby.

Thus
far, the beneficiaries of subsidies and price-fixing practices have
been successful in their efforts to influence the crafting of farm
policy that will be in place for the next decade. Consumers and
taxpayers should keep this in mind every time they go to the
supermarket and every time they pay their taxes.

1.This figure was
calculated by removing the expenditures in the $171 billion farm
bill that are not direct subsidies to farmers and adding other farm
subsidy programs, such as crop insurance, which are funded in other
bills, resulting in a total of $191 billion.

2.For a statistical
breakdown of these totals, see Brian M. Riedl, "The Cost of
America's Farm Subsidy Binge: An Average of $1 Million Per Farm,"
Heritage Foundation Backgrounder No. 1510, December 10, 2001.

6.The $64.2 billion
figure is taken from U.S. Department of Agriculture, "Budget
Summary," 2000, 2001, and 2002 editions, and the breakdown of
subsidies by crop is from U.S. General Accounting Office, Farm
Programs: Information on Recipients of Federal Payments,
GAO-01-606, June 2001, p. 23.

12.While the Senate bill
reduces the maximum annual subsidy a farmer can receive from
$500,000 to $275,000, it retains the numerous loopholes that make
these limits irrelevant. See Brian M. Riedl, "How Farm Subsidies
Became America's Largest Corporate Welfare Program," Heritage
Foundation Backgrounder No. 1520, February 25, 2002.

13.Members of Congress
defend their votes for farm subsidy programs that benefit
themselves by pointing out that they are financially affected by
many policies, such as tax policy, and still vote on those
policies. The conflict of interest, however, is in the degree to
which farm policy affects these Members. While marginal tax policy
changes have a minor financial affect that is distributed more or
less evenly across taxpayers, a vote to continue farm subsidies can
transfer as much as $750,000 in direct payments to a single Member
of Congress--a benefit 99.9 percent of other Americans would not be
given.